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CORN – Dec ’09 Electronic
Open – $3.26 1/2, High – $3.35 1/2, Low – $3.24 1/4, Close – $3.35 1/2 Up $.09 1/4
Thoughts – Long Term (into December ’09) – Sideways/Lower
Last Wednesday I said: “The market could have just as well been closed today because it was just that exciting. The Sep ’09 contract did very little today as it traded a very narrow range of $.06 1/2 from high to low. Sept did experience an early low and firmed as the day progressed but did nothing to get anyone excited. Today was an inside day meaning today’s high and low were both inside of yesterday’s trade range. This typically means whichever direction the market breaks out of tomorrow is probably the direction it will move for the near-term.
I don’t have much to add to yesterday’s comments other than I expect tomorrow to have an early high and weaken as the day moves on. The weather still doesn’t seem to be a threat and if this truly is the case then we could be looking at record crop come harvest and of course that points to lower prices. The last year of comparison of a record crop was 2004 and we found a low in the first part of Aug, rallied for most of the month and then proceeded to make new lows into the end of November and December. I believe this year will be similar assuming we do not get an early frost and weather cooperates.”
Dec ’09: One would or could almost get excited by today’s action but I think it is just a head fake. I have two possible sell signal setups for tomorrow’s session in corn. The first is if we gap higher tonight (open above $3.35 1/2) then there is a sell signal at $3.35 on a STOP order. The other is if we take out $3.35 1/2 either tonight or tomorrow and then another sell signal will be produced at $3.35 STOP. Both signals are conditional and need the market to do the things I described before the signals actually generate. The protective risk management buy stops should be $.02 above the most recent high at the time the sell stop fills.
Since 1989 there have been 10 years the market has closed higher on Sep 1st than it did on Aug 15th and there have been 11 years that it hasn’t. So far we are on pace to close higher on the 1st than we did on the 15th just like we did in 2004 when we had a record crop. The Dec futures closed $.14 1/2 higher on Sep 1st 2004 than they did on Aug 15th, 2004 and the market just faded away from there. I delta hedged our position on Friday because we had some long Sep puts that were going to expire and I didn’t want the full downside exposure of the corn market therefore I delta hedged our position. This position still gives us some upside protection in the event the market rallies hard but it protects us in the event it moves lower as well. I wanted to note my position as I am talking my position today but I would talk about something I didn’t believe in.
Bottom line: I am looking for the market to experience an early high tomorrow.
Dec ’09 Corn – Support/Resistance for 08-25-09
(R3) Resistance 3: $3.45
(R2) Resistance 2: $3.41
(R1) Resistance 1: $3.37 1/2
Today’s close: $3.35 1/2
(S1) Support 1: $3.32 1/4
(S2) Support 2: $3.28 1/2
(S3) Support 3: $3.27
MEAL – Oct ’09 Electronic
Open – $300.10, High – $308.30, Low – $300.10, Close – $308.00 Up $10.00
Thoughts – Long Term (into November ’09) – Sideways/Lower
Last Wednesday I said: “Sep meal also had an early low and late high just as was thought yesterday so here too like corn there wasn’t much significant action today other than today’s low matched yesterday’s low which is potentially friendly. I will hold off on the bullish thoughts for soybean meal for now but I can’t ignore the potential positive sign that left its mark on the chart today. This $307.50 area could produce a buy signal if the market makes a new low below $307.50 and then trades back above it. If all of this takes place then the signal would be at $308.00 on a buy stop with a protective sell stop $.50 below the most current low.
I still think upside coverage through a call option is warranted for now to get through the potential for frost but we will need to take a serious look at the meal situation assuming we have good weather for the remainder of the growing season. It feels like this is a dead market for now.”
Oct ’09 meal: Similar to corn today looked like a great day on the screen but I’m not fully behind this move just yet. I will be if and when we break through the downward trend-line around $318.00 but for now I think we are just trading the weather forecasts and the potential for a frost which is building some premium back into the market. What usually takes place and what is hyped are typically two very different things. As of Friday we are neutral the soybean meal market and are looking for a place to re-enter through a known risk strategy. I exited our long $320 Sep calls on Friday morning and will look for a place to get long the market via an option strategy.
Most of the market action for the next few weeks will be fear and weather driven and the weekly Oct ’09 meal chart is beginning to show a wedge pattern that would suggest a major move in one direction or the other is pending. The market needs to break out of and close above the down trend-line or below the up trend-line. I am looking for a turnaround Tuesday tomorrow.
Bottom line: I’m looking for the market to experience an early high and late low tomorrow.
Oct ’09 Meal – Support/Resistance for 08-25-09
(R3) Resistance 3: $315.10
(R2) Resistance 2: $312.90
(R1) Resistance 1: $308.30
Today’s close: $308.00
(S1) Support 1: $303.10
(S2) Support 2: $301.60
(S3) Support 3: $300.00
HOGS – Oct ’09 GLOBEX
Open – $44.475, High – $46.85, Low – $43.05, Close – $44.525 Down $.175
Thoughts – Long Term (into December) – Negative
Last Wednesday I said: “Ouch, October took some people for a ride today by trading over $2.00 cwt higher at one point and then closing lower on the day. Ugh. I was looking for the market to make an early high today but I thought it would come within the first hour of trade but it wasn’t until the third hour when it surfaced. I couldn’t find fundamental reasons for the rally this morning so we didn’t make any adjustments to any positions but we really don’t need to because we established a risk management position on Friday to protect equity gains in our short hedges.
Cash was around $.50 higher today per the USDA but the cutout was down $2.07 on heavy volume. The trade must have had mixed signals on what the afternoon product was going to do today with the violent swing in trade that we had today. At this point we remain hedged with option strategies to protect some of the excellent equity we have made in our short hedges over the last month. My hourly chart suggests we will see a late high tomorrow but I don’t know if I agree with it and for now we will do nothing different than what we have been doing for some time now, stay hedged.”
Oct ’09 hogs: Oct ’09 hogs had a sell signal at $48.00 stop today because the market gapped higher than Friday’s high on the open this morning and then traded back down below Friday’s high of $48.00. This signal is the same as the potential signal I talked about in my corn comments that is set for tonight. The noon cash report was relatively negative but came in mixed this afternoon. There hasn’t been much change in the cash market other than it isn’t tanking nor is it taking off to the upside, it’s just hanging out.
I hate to say it but I believe today was the beginning of another leg lower in the Oct ’09 hogs. The corrective rally we had last week was nice but today just put the cap on that move and turned things ugly from what I look at. This move seems to happen quite often when we get a rally the market gets too excited, gaps higher and then pukes. There has been very little change as to why we should think the market should rally, there isn’t much of a reason at all other than it is historically low when you look at producer margins.
I don’t like the market at all in here, it looks like we could see another move lower and I think we should challenge our Oct ’09 contract low of $43.05 and eventually break into the $30′s. This year correlates with the years of 1998 and 2002 which if you can remember made its ultimate low on 09/01/98 and 09/03/02. It is interesting that the same signal that we got today to sell the market is the same signal that bottomed the market in both 1998 and 2002.
Bottom line: I’m looking for the market to make an early high tomorrow.
Oct ’09 Hogs – Support/Resistance for 08-25-09
(R3) Resistance 3: $48.00
(R2) Resistance 2: $47.75
(R1) Resistance 1: $47.20
Today’s close: $46.825
(S1) Support 1: $45.925
(S2) Support 2: $44.075
(S3) Support 3: $43.05
(S4) Support 4: $39.64
(S5) Support 5: $35.275
(S6) Support 5: $29.40
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